Solar faces freeze from Xcel rebate cutback

UPDATE (3/11): Settlement negotiations aimed at restarting Xcel's Solar*Rewards rebate program are progressing, the utility told state regulators late Thursday. But more time is needed to reach a final agreement, the utility said in a filing at the Colorado Public Utilities Commission. > Click here for more.

The closing of Xcel Energy Inc.’s Solar*Rewards program may have caused long-term damage to the solar-power industry in Colorado, even if the program is resurrected quickly, industry business owners say.

Employees have been laid off. New sales have virtually halted. And one company executive said his company is looking for new markets outside of Colorado.

“We’ve sent a terrible message to the rest of the country that Xcel’s solar market is unstable and uncertain,” said Blake Jones, president of Boulder’s Namasté Solar Electric Inc., which laid off 12 employees. “That one stakeholder, like Xcel, can unilaterally devastate the market is not good for attracting more investment, companies and jobs.”

Xcel on Feb. 16 announced it was cutting the rebate levels for its Solar*Rewards program, which helps pay for rooftop solar-power systems on homes and businesses, from $2.35 per watt to $2.01. That same day, the Minneapolis-based utility (NYSE: XEL) also sought permission from the Colorado Public Utilities Commission (PUC) to cut the rebates to $1.25 per watt — a 47 percent drop from early February’s levels.

Xcel needs the PUC’s permission to cut rebates to less than $2 per watt.

Xcel closed the program the next day after solar-power companies snatched up the last 3 megawatts’ worth of rebates available at $2.01 per watt.

Looking for agreement

The PUC on March 4 gave the Colorado Solar Energy Industries Association and Xcel a week to reach an agreement on rebate levels. If an agreement was reached, the PUC would consider it on March 11.

But Jones said even a quick settlement won’t calm the long-term outlook.

“The first question companies will ask, including ours, is ‘Can this happen again?’” he said.

Xcel officials say cutting rebates will ensure about half the cost of a solar-power system will come out of the customer’s pocket.

In California, where state-supported rebates have helped install 792 megawatts’ worth of solar power, rebates and federal tax incentives cover about 50 percent of the cost of rooftop solar-power systems, said Michael Sheppard, an analyst with IHS Inc., based in Douglas County.

“It’s a small number of our customers who take advantage of these incentives, versus the 1.3 million customers who pay into this,” said Michelle Aguayo, Xcel spokeswoman. Rebates are paid for through a 2 percent surcharge on the monthly bills of Xcel’s 1.3 million electricity customers in Colorado.

The average cost of a rooftop solar-power system was $14,175 in early 2011. Xcel said, before its Feb. 16 announcement, that solar-power customers were paying about 40 percent of that cost. The rest of the money came from Solar*Rewards’ rebates and federal tax incentives.

At the end of 2010, Xcel already had approved about $76.8 million in rebates for installation in 2011, creating a backlog totaling 37 megawatts of power. Solar power company executives say they’re working through that backlog, but worry about the market’s future.

SolarCity freezes hiring

“It’s not business as usual,” said Eric Wittenberg, regional director in Colorado for SolarCity Corp., based in San Mateo, Calif.

“Closing down Solar*Rewards, while they work through the PUC to revise it, has essentially shut down most of the solar industry in terms of new sales. There’s no state rebate,” he said. “While we can sell solar for cash, it’s a much bigger check than I think most people are prepared to write today. The industry today is stalled.”

SolarCity, which has 65 employees — more than double its numbers in October 2010 — froze hiring on 12 positions it had available, Wittenberg said.

“The real issue is what is the market going to look like,” Wittenberg said. “If the costs go up [because rebates drop], it will take some time before the consumer comes back.”

Namasté, which had 75 employees and planned to hire another dozen people this year, made layoffs to cut overhead and conserve cash, Jones said. It was the company’s first layoffs since it started in 2004, and Jones said he’s heard of layoffs at “a half-dozen” other local solar companies.

And even if the rebates start flowing again, “We’re going to think long and hard before we bring those jobs back,” Jones said.

“We have a long backlog of projects already approved and we’re in a strong financial position. But given the uncertainty, we wanted to take preventive precautions because we don’t know how long this will last, and we don’t know how certain, how bankable, the resolution will be.”

Jones said the company also is ramping up efforts to enter markets outside of Colorado.

“I think customers can lose confidence in the market when they see things like this happening, and all the time it takes to explain the chaos — that translates into more expense,” Jones said.

“We’d already planned to diversify into other states this year. That plan got a turbo boost.”